Lord Clement-Jones: I thank the noble Lord for his remarks on Amendments Nos. 83 and 84. I shall look carefully at the assurances he has given when considering any further amendments.

Earl Howe: I thank the Minister for covering the ground so comprehensively. I wish to respond only briefly. I am reassured by the intention of the Government to consult widely on each set of draft minimum standards. That will be a good thing. However, the reason why I wanted to put the amendment on the face of the Bill is that, while it is acceptable for the Minister to express what is undoubtedly a sincere intention on the part of this Government, he cannot bind future governments and parliaments. For that reason, there is a case for including a provision as regards consultation and I shall need to reflect on that.

13 Jan 2000 : Column 819

I am reassured by his comments on the meaning of "taking into account". Clearly, while that was largely a probing amendment, that form of words did not, so far as I was aware, have a defined meaning in law. The Minister has been most helpful in putting some flesh on the bones. If it does allow for flexibility, then that is a good thing.

As regards the matter of the regulation of room sizes, technically, what the Minister said was correct; namely, that for a number of years room sizes have been laid down to the measurements he mentioned. However, what is also true is that local authorities have been able to exercise discretion. This has been very much a local matter, so that in different parts of the country rooms can vary in size. As I mentioned, in Lancashire the pattern has been to license residential and care homes with much smaller sizes of room. The same is true in areas of the south coast. My concern is that, at a stroke, such care homes, where people are living happily and are well looked after, would be consigned to oblivion. I do not believe that this has been sufficiently thought through and I hope that Ministers will take on board those concerns.

I am very unhappy that the Minister does not agree that there should be parliamentary scrutiny of the minimum standards. While it is true that the regulations will already have been laid--the Minister rightly pointed that out when he gave the example of staffing ratios--they will be phrased in general terms. All noble Lords would approve of regulations covering staff numbers, but, as I said at Second Reading, the devil is in the detail. I am not pressing for the affirmative resolution or making any other such pie-in-the-sky request, but if there are concerns, then Parliament should be given the opportunity to discuss them. I shall have to return to that matter.

The question of resources was addressed by myself and by the noble Lord, Lord Clement-Jones. Resources lie at the heart of this matter and I am sorry that the Minister did not feel able to comment in any way on how the cost of upgrading might impact on the level of fees the Government would be prepared to see in place.

Lord Hunt of Kings Heath: I thank the noble Earl. I thought that I had made clear that the Government will look at the potential cost of the introduction of higher standards. Furthermore, they will take those costs into account in any discussions on public expenditure decisions in the future.

7.45 p.m.

Earl Howe: At that point I must have been paying insufficient attention when the Minister was speaking and I apologise for that. I am most grateful to him.

I should like to point out that the two significant items of expenditure required under Fit for the Future? are, I believe, to enlarge the width of doors to 0.8 metres and to provide three double sockets in each bedroom.

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I have been advised that those are two very costly items. If those requirements are imposed, please can we receive an assurance that they have not been merely plucked from the air, especially in the case of door widths. From what the Minister has already said, I am sure that he will examine that point carefully.

I am aware of the time, but can the Minister answer two specific questions on national minimum standards? First, how does he envisage such standards interacting with national service frameworks and, secondly, how will those standards be reflected in planning regulations?

Lord Hunt of Kings Heath: I presume that the noble Earl is referring to the issue of private healthcare establishments as regards national service frameworks. When we debated this matter I referred to a number of policy developments and institutions concerned with the management of the National Health Service which might inform the standards that would be set for the private healthcare sector. That is the position, I believe. Clearly, when setting out the basis for a framework for the development of consistently high quality services throughout the National Health Service, elements will be contained in that framework that will be relevant to any national minimum standards set in relation to the Bill. However, it is a little difficult to say more than that until we have begun to develop further the national service frameworks.

I suspect that the noble Earl may be suggesting that national service frameworks should automatically be applied to the national minimum standards. However, I would not accept that because I must return to the distinction I drew in our previous debate; namely, that the regulatory function of the commission will be very different from the Government's responsibility to manage the NHS effectively. National service frameworks are concerned with effective management and the delivery of high quality services. However, of course they can inform the development of national minimum standards.

Earl Howe: I am grateful to the Minister for that response. I am not sure whether the Government have reached the point of thinking about how, and to what extent, the setting of national minimum standards will be reflected in planning regulations, which I do appreciate falls outside the remit of the noble Lord. Nevertheless, if national minimum standards are laid down, in however discretionary a way, it is a factor to be taken into account, and I should have thought that planning regulations will also need to take them into account.

As I said, I am aware of the time and at this juncture I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 81 to 84 not moved.]

Clause 21 agreed to.

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Lord Burlison: I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

Air Traffic: Transatlantic Flights

7.49 p.m.

Lord Naseby rose to ask Her Majesty's Government what is their policy on opening up transatlantic flights to new entrant carriers.

The noble Lord said: My Lords, it is my pleasure to open this debate. Perhaps I may say how encouraged I am to see the Minister of Transport himself here to respond. I thank him in advance for doing me that courtesy.

Some may wonder why I have tabled this Question. The principle reason, as some noble Lords will know, is that I was an RAF pilot. I toyed with joining the airline industry as an executive, but decided otherwise. Before becoming Deputy Speaker and Chairman of Ways and Means in another place, I took some interest in the subject of air travel. Like your Lordships, I read the newspapers. Last November I was conscious that the issue of transatlantic services would come up for negotiation, as I understood it, some time in January 2000 and that the matter had been outstanding for many years. Therefore, I felt that it might be helpful to give the issue a nudge forward. I have been helped in my briefings by material supplied by Singapore Airlines and British Midland. Indeed, had any other airline briefed me, I would have been equally receptive.

It seems to me that there are three main considerations. First is the lack of competition and real choice for air travellers on transatlantic routes from the United Kingdom. Secondly, and equally important, is the continuing under-use of capacity at our regional airports. Thirdly, there are the specific difficulties that seem to be experienced by a number of new entrants, particularly British Midland and Singapore Airlines, in securing transatlantic rights from Heathrow. That is all against the background of the Government's White Paper issued about two years ago which said that transatlantic travel would be opened up.

I start with the first of the three considerations, the lack of competition and real choice on transatlantic routes. We have a potential market in the United States of about 300 million people--as big as that of the European Union. I am concerned about British travellers. They have a very limited choice of airlines, as the examples will swiftly indicate. Between London and the United States there are 720 services a week, 95 per cent of which are supplied by just four airlines, two US carriers and two United Kingdom carriers. British Airways and American Airlines share 55 per cent of all services including 70 per cent on the London to Chicago route and 60 per cent on the London to New York route.

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The restrictive UK-US bilateral agreement provides for only two carriers from each country to operate from each of the three London airports and only three non-UK/US airlines are allowed to operate on the transatlantic route. That means that the provision is less than 5 per cent.

As I looked into the issue, what really disturbed me was that if one is a British businessman one can only travel direct to 10 US cities. However, a German businessman, with whom we compete extensively in the United States, has no less than 18 direct services from Frankfurt. It appears to me that that is solely due to an "Open Skies" policy which we do not have.

Secondly, Manchester is a very important part of the industrial base of the United Kingdom. It has only 48 direct services a week operated by only four UK-US airlines to just five cities. There are no services at all to the US west coast. Birmingham is the heart of our metallic industries. It has two airlines, both American, operating just 14 services direct to just two US cities. From Glasgow there is one direct service at the moment operated by Continental Airways to Newark.

This under-use of regional airports is not sensible. All the airports I have mentioned are Category A international airports, all approved for long-haul services. It is true that there are connecting flights via London and a few indirect flights over London to the US. But these are not dedicated flights from regional airports and do not directly benefit the regional airports themselves. Despite the decision of the previous administration to allow US and British carriers--the so-called third and fourth freedom operators--to operate to regional airports without restriction, there are still very few transatlantic services.

Airlines from other countries are still prevented from operating transatlantic services beyond the United Kingdom from regional airports. Surely the time has come to open up regional airports for transatlantic services to foreign airlines which, in the jargon, are called fifth freedom operators.

The Minister will have noted an Early Day Motion in the other place, supported on an all-party basis and signed by a substantial number of Members of Parliament. That indicates that this is a subject of interest right across the political spectrum.

I do not believe that there is much argument about the fact that regional airports play a very important role in job creation, overseas trade and commerce and that they relieve congestion at London. So fifth freedom services will help all those aspects. I ask Her Majesty's Government whether they intend to grant these rights to foreign airlines.

It takes time to build up any kind of service from a regional airport. For example, the Singapore Airlines route from Manchester to Singapore started in 1985 with two services a week. It took a considerable time to build it up to the current daily service. We need to recognise that it has not been a simple success story. There have been ups and downs. But that particular carrier stuck through thick and thin to ensure that the service was maintained. It seems pretty clear that if we

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want to encourage the growth of regional air services we need to encourage airlines to operate from those airports.

I now turn to Heathrow. Considerable difficulties are being experienced by new entrants. London is in a different situation. It is our capital city and the main point of entry for those coming to the United Kingdom. It is absolutely vital that it remains the pre-eminent point of entry. But currently access to London and beyond is highly regulated. The existing bilateral agreement between the United Kingdom and US provides that only four airlines, two from each side, can operate transatlantic services from any one London airport. This agreement frustrates the attempts of British Midland to open a transatlantic service and enables a few airlines to dominate the route.

I am aware that negotiations have been taking place for a very long time. Can the Government say whether there has been any progress at all in liberalising the bilateral agreement and when we can expect a new agreement which will enable British Midland to join the route?

However, a British Midland service, welcome though it would be, would still not provide the greater choice of service that I believe British travellers deserve. The choice would still be between just a British and American carrier. As I mentioned, the other carriers on the route at the moment are Kuwait Airlines, which has three services a week, and Air India, which also has three. So there are six services which are non-British or American out of 175 a week. That is not a vast amount of consumer choice.

Rightly, our Government and our nation pride themselves on the fact that we are liberal country in terms of competition. That was reaffirmed 16 years ago in the Conservative White Paper which stated that the government would promote competition and that they would make it easier for new airlines to enter the market. As said, about two years ago the present Government said:

"We wish to see the liberalisation of transatlantic services...on the basis of fair competition...and with adequate protection for small and new entrant carriers against the abuse of market power".

So far there is little evidence of that happening.I move now from British Midland to Singapore Airlines. That airline, I understand, has been trying for about 10 years to open up a service from Heathrow to the United States. I am unclear why it has taken so long. I wondered whether Singapore was carrying out some kind of protectionism. I could not find any evidence of it. There appears to be a fairly liberal agreement between the UK and Singapore which enables an airline from any country to operate as many services as it wishes between the two countries. Given that we have three international airlines flying to Singapore whereas Singapore has only one, so far the agreement has been to our advantage. As I understand it, the Government of Singapore have granted UK carriers substantial rights beyond Singapore to Australia, including code-sharing rights, of which British

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Airways has, quite rightly and understandably, taken full advantage. I also understand that "hubbing" rights have been made available. Whatever way one looks at it, equity and fairness suggest that Singapore Airlines should at least be given the opportunity to have some form of transatlantic rights.

What is the delay? I remind the Minister that in 1989 the government said that once Singapore Airlines achieved up to 21 services to the UK a week from Singapore the issue would be taken very seriously, but so far no progress has been made. What is the situation in relation to the US/UK agreement? As I understand it, the United States is quite happy for Singapore Airlines to operate across the Atlantic. I am not sure what is holding matters up at this end. It does not seem likely to be due to British Airways fearing competition. By any yardstick, British Airways is a very successful airline, well patronised by the public. Obviously, that is in the interests of the passenger.

Can it be that there is a worry about extensive over-capacity on the route? If passenger numbers fell it would be a worry, but I note from the January issue of Aviation Strategy that the existing British Airways and Virgin services have enjoyed load factors of 77 per cent. Would not every airline in the world wish that it could achieve that? Furthermore, they intend to increase capacity on the route by 10 per cent. The Minister will be aware of recent statements by British Airways that it intends to go up market. Certainly, if British Midland and, to an extent, Singapore Airlines came along, it would ensure that economy class capacity remained fairly constant.

Questions have been raised in the press about shortages of slots. I believe that that is a red herring. Slots are in any event a matter for airport authorities and not the Government. Suggestions have been made that, because Singapore Airlines has made an investment in Virgin, it does not really need this opportunity. I believe that its code-sharing agreement with Virgin is very similar to BA's agreement with Qantas. While British Airways flies direct to Australia and has a code-sharing agreement with Qantas, this is a very similar situation.

Whatever the reason for the delay, as far as concerns the British traveller it has gone on for too long. It is also costly to British industry. If one can travel cheaply to Amsterdam one can then fly to the United States at almost half the price one would pay if one travelled from London. That cannot be in the interests of British exporters. Therefore, I ask Her Majesty's Government whether they will expedite the request of Singapore Airlines for a transatlantic service.

In conclusion, I make four points. First, despite the best intentions of successive governments--I do not make any party political point--air transport remains one of the most highly regulated sectors in the world of transport and commerce. Secondly, that situation is detrimental to passengers and consumers who, according to all the information available, benefit from greater choice and competition. Thirdly, bilateral agreements, which restrict access to routes such as the transatlantic to just two participating

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countries, have not served the interests of the consumer well, particularly the British businessman. Fourthly, those agreements are detrimental to the growth of regional airports.

In the interests of fairness and equity and greater choice and competition on the transatlantic route, I respectfully ask that the Government open up regional airports to fifth freedom carriers, hasten their negotiations with the US over British Midland and expedite the discussions next week, I believe, with Singapore so as to give Singapore Airlines the opportunity to provide greater choice to transatlantic travellers from Heathrow.

8.3 p.m.

Viscount Waverley: My Lords, I apologise to the House for rising to speak but I should like to make two quick points. The whole approach to transatlantic air routes is a throwback to a bygone era and is inconsistent with globalisation endeavours. Therefore, historic protectionist support for selected carriers must end. However, there is one caveat. A mechanism must be found whereby passenger and cargo services are not adversely affected by unprofitable carriers.

The noble Lord spoke about the regions. It has always appeared odd to me that many believe the centre of the universe to be London and the south-east. I believe that this Government should be instrumental in bringing about economic well-being in other regions by diverting, or creating, additional routes.

8.4 p.m.

Baroness Thomas of Walliswood: My Lords, we are indebted to the noble Lord, Lord Naseby, for initiating this brief debate in a comprehensive manner. He put his questions in a broad context and I shall do likewise. This is a good opportunity to point out that in general Liberal Democrats support open skies policies and greater competition within an envelope of concern for improved environmental conditions in the air and around airports. We also favour the encouragement of a greater role for Stansted and, to a lesser extent, Gatwick in air transport and a much greater role for the major provincial airports. That point has also been comprehensively made by the noble Lord. A number of my honourable friends in another place put their names to the Early Day Motion to which the noble Lord referred.

The context of the debate this evening is the Bermuda II agreement between the US and UK which has been the subject of renegotiation for a long time. At the moment, it has the curious effect of creating in the provision of air transport into and from Heathrow what in any other industry would be described as a cartel. If in any other commercial operation only four operators were licensed to provide services, in most cases it would have the distinct ring of a cartel about it. It is certainly anti-competitive. The excellent services that are offered by all four airlines are provided at considerably greater cost per mile than

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similar services from, say, Amsterdam and Paris which are both quite close to southern England. They are also provided at a considerable loss to British businesses, estimated to be £2 billion, that use those airlines because of the range of services and the convenience that they offer to passengers who originate in this country.

A second difficulty that arises under Bermuda II relates to the restrictions on rights of cabotage for UK airlines within the US. I do not believe that in this Chamber I need to waste time by defining "cabotage". It is important to remember that the US is not similarly prohibited within the European Union, certainly not to anything like the same extent. The Government recently offered Federal Express the right to bring its trade into Prestwick, no doubt with great benefit to business, and to carry it onwards from Prestwick to other airports. Therefore, that limited cabotage right has been granted and we still have not been granted similar rights.

I understand that negotiations continue to consider further the liberalisation of Bermuda II. I understand that the terms of the limited liberalisation--the Government will return to them at the end of this month--are as follows. It would allow British Midland to operate two flights daily to two US cities; two US carriers each to operate two flights daily into Heathrow; a resumption of the Pittsburgh-Gatwick service; and the possible approval (I understand that the United States is not satisfied) of code-sharing between BA and AA. That would provide a new entry for British Midland into the US and a reciprocal increase in the number of US airlines operating into Heathrow but would not provide any abatement of the prohibition on cabotage within the United States.

If finalised, however desirable those arrangements may be to British Midland--it could use some of its current domestic slots to facilitate them--is gradual liberalisation between the UK and the US the right approach to achieve full competition across the Atlantic and fifth freedom rights for UK operators within the US? Does not it risk giving concessions to the US without gaining sufficient concessions in return? Let us be in no doubt. The apple--what everyone wants--is entry into Heathrow. We want onward movement and independent operation within the United States. We must not give away something without getting what we want in return.

In these partial negotiations, is the heavy concentration on the role of Heathrow and London rather than on the UK's regional airports justifiable? The noble Lord made the point effectively. In the context of the Government's most welcome announcement on 10th November last of the preparation of a new air transport White Paper, a key element of which is likely to be an increased role for the UK's regional airports, would it be more logical to encourage more transatlantic traffic to other major centres such Manchester, Birmingham and Glasgow?

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There is also the complicated question about whether or not these bilateral negotiations are the right way to pursue this difficulty in European/United States relations. The EU is committed to an open skies policy. There are those who suggest that the EU would be a more suitable negotiating partner. I should like to hear the Minister on that issue. He will observe that I ask my three major questions at the beginning of my contribution to the debate. I hope that that will enable him to answer those modest queries.

The noble Lord, Lord Naseby, gave a comprehensive picture of the lack of mutuality between Singapore Airlines' position as an operator out of Heathrow towards the United States and BA's ability to operate onward out of Singapore. It has granted us full onward rights; and we are extremely reluctant to grant the same. I am bemused by the recent government response to Singapore Airlines; namely, that they can do nothing about the onward movements out of Heathrow into (for the sake of argument) New York or Chicago until the difficulties of the United States negotiations have been resolved. I understand that the two are not connected. Singapore Airlines has permission already from the United States Government to operate in and out of United States airports. Therefore, there is no difficulty as regards the United States. The difficulty resides in the Government's reluctance to grant to Singapore Airlines the right to leave Heathrow in the direction of the United States. That seems peculiar.

I agree with the noble Lord, Lord Naseby, that slots are not the problem. If the British Government were to give Singapore Airlines the right to such onward flight, as I sincerely hope they are about to do, the issue of slots would be determined by the relevant airlines committee at Heathrow and is nothing to do with the Government. Why do the Government appear to be so reluctant to give a more equal access to Singapore Airlines and thus behave in a balanced fashion?

In some sense airline alliances are an effort by international airlines to outwit the restrictions placed on transatlantic travel under the Bermuda II agreement. The Star alliance contains Lufthansa, British Midland--it has a large number of domestic slots at Heathrow--SAS, United, All-Nippon Airways, Air Canada, Thai Airways, Air New Zealand, Varig, and so on. That huge group of airlines is faced by BA, Qantas, American Airways, and so on, in the Oneworld alliance. One of the features of those groups is an effort to outwit the restriction on flights across the Atlantic through the code-sharing mechanism. Does the Minister agree that most of the other effects are not beneficial to the travelling public?

That increasingly obvious grouping of airlines must involve an anti-competitive aspect. The recent acquisition of shares in Virgin by Singapore Airlines suggests that it may be moving--perhaps reluctantly as regards Virgin--towards greater co-operation with one or other of the airline alliances. Does the Minister agree that there is potential for anti-competitiveness in that relatively new development in the airline industry?

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8.20 p.m.

Lord Brabazon of Tara: My Lords, I am grateful to my noble friend Lord Naseby for raising the issue in your Lordships' House--the first time for a long while--and it is good that we have the Minister responsible to answer the Question tonight.

We on this side of the House are entirely in favour of liberalisation and did an enormous amount to achieve it within Europe and elsewhere. However, it must be balanced with the rights and interests of our airlines to maintain their business as best they can with the travelling public.

The Question refers to transatlantic routes; it does not refer specifically to Heathrow Airport. One must remember that Heathrow is not the only London airport; there is Gatwick Airport, too. Heathrow has only two carriers from each side of the Atlantic; British Airways and Virgin Atlantic on our side and American Airlines and United Airlines on the other. I am a veteran of the transfer to United Airlines and American Airlines from Pan Am and TWA, which was a most interesting experience. However, Gatwick, which is just as convenient for many people travelling from London, has no fewer than 11 carriers. Together, they serve 26 United States airports, which is more than any other European city. Therefore, one must look at the issue of competition overall.

We are not in favour of unilateral gestures on competition issues. I remember that a few months ago the noble Baroness, Lady Thomas, asked about the unilateral offer to FedEx and other carriers and fifth freedom rights over Prestwick. It was then thought that we should receive some gesture from the United States, but I do not believe that anything whatever has been achieved. Perhaps the Minister can comment on that.

I am also keen to discover the state of play on negotiations overall. I understand that talks between Singapore and the United Kingdom are to take place in a few days' time. I do not expect the Minister to reveal his negotiating position--it would be wrong of him to do so--but we have more than 50 per cent of the UK/Europe market. That is a considerable achievement and therefore bilateral arrangements with the United States are most important.

Nevertheless, it is alleged that fares for business and first-class travellers are higher here than in the rest of Europe. I do not believe that that is the case for people in the back of the aeroplane because one can find extremely good bargains. I must declare an interest because nowadays my flying is done from Luton Airport which is, as we are all aware, the home of a very good and successful airline. Perhaps we should be looking for transatlantic flights from there! Stelios, where are you?

The issue before us today focuses on two applications; Singapore Airlines' fifth freedom rights and British Midland. Singapore Airlines state that the UK airlines have fifth freedom rights beyond Singapore. That is undoubtedly true, but, if my recollection is right, those rights were granted in exchange for others which Singapore Airlines wanted.

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That was a "done deal". For Singapore Airlines now to say that the right should be extended to it over London is slightly disingenuous because if it wants those rights it should be offering concessions to UK airlines elsewhere. I was under the impression that those earlier rights were bought and paid for on a deal done some years ago.

The other question I have about Singapore Airlines relates to the fact that it has recently bought 49 per cent of Virgin Atlantic. Through that partner it already has transatlantic rights from Heathrow, so why does it still want to operate over the Atlantic? That needs to be justified. If Singapore Airlines were granted the right, how many other airlines around the world would come knocking at this door? London to the United States is the biggest airline market in the world. Anyone would want to operate it. Therefore, I caution the Minister to take those points into account before deciding on the application.

As regards British Midland, I hope that the Minister can tell us what progress is being made in negotiations. Perhaps I may also take the opportunity to pay tribute to the department's negotiators. There are not only those who deal with the more glamorous places, such as Bermuda, but there are also those who slave away in places such as Lagos. I remember dealing with the Nigerians, which was an absolute nightmare. All the negotiators do a very good job and tribute should be paid to them.

If a British Midland deal means that two new US airlines have to come to Heathrow, so be it. It would be for the United States Government to decide which two, but that has proved difficult for them because they have many more airlines to choose between. That has been a difficult issue in the past. However, the failure of the British Airways/American Airlines deal opens up the opportunity to take a fresh look at the matter. I hope that the Minister can bring us up to date on how the Government intend to play that opportunity.

At the end of the day "open skies" means more than more airlines operating on UK/US routes. As the Minister will be aware, "open skies" has two different meanings; one which we would give it and one which the Americans would give it. As far as I am concerned, it means ownership and control, cabotage, wet leasing, Fly America and so forth. I am aware that some of those issues are not entirely under the control of the US Government; they are under the control of Congress where previously there have been considerable difficulties.

I am grateful to my noble friend for raising the Question and I very much look forward to the Minister bringing us up to date with the latest state of play in negotiations.

8.28 p.m.

The Minister of State, Department of the Environment, Transport and the Regions (Lord Macdonald of Tradeston): My Lords, I am grateful to the noble Lord, Lord Naseby, for providing the opportunity to debate the Government's policy on

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transatlantic aviation generally and the opportunities for new entrant carriers in particular. If I say that many of the points made today are familiar to me, it is a reflection of the exhaustive nature of the discussions which have taken place over a long time, including expertise in this House which is more extensive than mine. However, I stress that that familiarity results from the frequency of the discussions in past years rather than any paucity of ideas in your Lordships' House today.

The Government's policy on aviation generally is to support liberalisation. By "liberalisation", I mean the removal of those restrictions which stifle competition, inhibit efficiency and deny to consumers freedom of choice. But we must be clear about what liberalisation does not mean. I am grateful to the noble Lord, Lord Brabazon, for preparing the way for me on that point. Liberalisation does not mean liberally conceding competitive advantage to the carriers of any other state; it does not mean asking our carriers to compete with foreign carriers upon whom we may have lavished rights and privileges which have not been reciprocated; and it does not mean putting at risk the thousands of jobs in the UK which are dependent upon a healthy home-based aviation industry.

However, such a declaration of intent towards even-handedness is not quite so easy to realise. I mentioned our carriers but they, of course, do not comprise "the industry"; they are a component of a much wider entity. Moreover, the carriers are, as is implicit in this discussion, in competition among themselves. Therefore, although we can often find areas of agreement between them, their competitive relationship means that we can never look to carriers generally to present a single point of view.

The airports, which have been mentioned, must be considered also: the London airports, the English regional airports and the airports in Wales, Scotland and Northern Ireland. The interests of each category of airport and of the wider regions in which they are situated are not invariably the same. Nor are the interests of the airports and the carriers always aligned. Furthermore, the symbiotic relationship of the ancillary sectors of the industry with the carriers and the airports is such that, if the economic vitality of the host industry should be sapped, they too will feel the pinch.

The noble Baroness, Lady Thomas, raised the question of alliances, which is another dimension of more recent origin which we must bear in mind also. The co-operation of carriers in global alliances to provide greater choice can improve flexibility. Yes, of course there is the danger that alliances may work anti-competitively but we are, and shall remain, vigilant to ensure that the consumer is protected from any abuse of a dominant market position.

A respected commentator wrote recently that recording the fortunes of a nation's civil aviation gives an insight into that country's commercial, political and social development. The truth of that axiom is confirmed by an examination of civil aviation over the North Atlantic over the past 50 years, which

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underlines the importance of the remarks of the noble Lord, Lord Brabazon, about the importance of that market. It is without doubt one of the most important arenas for both UK and US aviation. In 1998, some 17 million passengers and some 673,000 tonnes of air cargo were carried between the UK and the US. It is a credit to our carriers that, between them, they carried 60 per cent of the passenger total and 53 per cent of the cargo. That is the sign of an efficient sector of the industry providing a better service than its competitors.

As has been pointed out, the provision of air services between the UK and the US is governed by the Air Services Agreement commonly referred to as Bermuda II. That agreement confers upon each side a balance of opportunity if the carriers of each side exploit it effectively. That is not to claim that Bermuda II is the ideal template for efficiency and equity; if we can achieve even more opportunities for new entrant carriers to enter the market, the keener will be the competition, the leaner and fitter will be the industry, and the greater will be the advantages accruing to the consumer.

In other words, in UK-US aviation relations our goal must be the removal of anti-competitive restrictions and the ushering in of a new and liberalised regime: skies which are truly open to carriers of both sides, bringing benefits not only to aviation consumers but to UK plc as well--if I may put it that way. There are some problems at present--accusations have been made that the current arrangements cause excessive fares in business class. It is true that there has been a tendency for some business class fares out of the UK to be higher than those for the rest of Europe, but it is true also, as has been said, that economy fares tend to be lower. We recognise that greater competition could help to reduce business fares. That is one of the reasons why we have been pursuing a liberalisation package with the United States.

However, the question of whether we should adopt a more liberal regime, or--as the US would have it--an "open skies" regime is, as the noble Lord pointed out, problematic. The particular template for open skies being commended to us by the United States, for instance, would appear, at a cursory glance, to point the way to the broad, sunny uplands of liberalisation and healthy competition between contracting parties. However, I do not believe that it would work out in that way. The US template on offer would afford their carriers the rich pickings of our domestic market--which of course now includes the European Union countries--while our carriers would be kept firmly locked out of the Americans' domestic market by their denial to United Kingdom airlines of the right to carry passengers between points within the United States (a right known as "cabotage"); by their protectionist "Fly America" policy, under which US carriers have the monopolistic right to carry US public servants; by the US's refusal to countenance the so-called "wet-leasing" of British aircraft with their crews within their

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territory; and finally, by corporate control through strict US limits on inward investment by UK companies.

All of those anti-competitive advantages the US wishes to retain while demanding of us their equivalent value under the so-called "open skies". Under that template, the skies are not open in the sense that I understand the word, nor is it the model for liberalisation of the kind that we should seek to construct.

I turn now to the question of transatlantic fifth freedom rights. We believe that fifth freedom traffic rights should be subject to negotiation with bilateral partners. Generally speaking, the UK seeks a balanced exchange of those fifth freedom rights. We receive many requests for transatlantic fifth freedom rights. They are particularly valuable, as has been said from the Benches opposite, especially as the UK-US aviation market is not fully liberalised and the operations of UK carriers are restricted. Until such time as the UK-US market is liberalised further, and in particular, until such time as all UK carriers wishing to operate from Heathrow to the US may do so, the United Kingdom will normally continue to resist requests for transatlantic fifth freedom rights from London unless a balanced exchange of rights is available.

The noble Lord, Lord Naseby, and others raised the question of those rights for Singapore Airlines. The points I have so far made relate to the bilateral position between the United Kingdom and the United States. Of course, there are other would-be players such as Singapore Airlines: carriers from third countries seeking fifth freedom rights to carry passengers between the UK and the US. Indeed, a number of countries have been pressing us for rights for a number of years; notably, in recent months, Singapore.

The noble Lord, Lord Brabazon, has the advantage over me in the length of his memory of those negotiations. Of course I take on trust what he says. He summed up succinctly the importance of Heathrow access, which I have attempted to underline. I hope that your Lordships will understand that I cannot go into detail on Singapore's request because the bilateral negotiations between our countries are scheduled to take place in Singapore next week, as has been mentioned already. However, I repeat that it has been our policy for some years that such rights are valuable and they will be traded, but only on the basis of mutual benefit to both countries.

The noble Lord, Lord Naseby, the noble Viscount, Lord Waverley, and the noble Baroness, Lady Thomas, raised the question of regional airports. Your Lordships' House will be aware that in 1998 the Select Committee on Environment, Transport and Regional Affairs reviewed access to the regional airports. In June 1998, prior to their appearance before the Select Committee, Ministers announced a new policy on international access to regional airports, which was to offer bilateral partners on the basis of reciprocity unrestricted third and forth freedom access to all UK airports except Heathrow and Gatwick.

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Fifth freedom rights were not included in the offer and they remain the subject of negotiation and exchange of rights, except in exceptional circumstances. The Select Committee recommended that the Government should offer unrestricted access to regional airports. In their response, the Government agreed to review the policy in January 2000. Therefore, officials have been consulting the interested parties, the consultation exercise has just finished, and a decision will be made shortly.

I move on to the particular question of talks between the United Kingdom and the US. The request for the latest round of talks came from the United States. The two main agenda items were the resolution of a US problem relating to services between London and Pittsburgh, and proposals for a liberalised cargo regime.

As your Lordships may recall, in October 1999 British Airways took a commercial decision to suspend operations between Pittsburgh and London. That left Pittsburgh with no direct link to London and no spare gateway under Bermuda II for a US carrier to operate a replacement service. The UK has always been willing to help the US to solve its problems, but on the understanding only that any advantage accruing to the United States from the acquisition of an additional gateway would have to be balanced by advantages for UK carriers.

Currently, we do not require an additional gateway. Therefore, we are looking to agree a package of measures--a "mini-deal"--which would allow the United States to re-establish a Pittsburgh service and give a new UK entrant an opportunity to operate to the US from Heathrow. In addition, a question arose about cargo. Reference was made to the encouragement which we had given to the prospects of a deal by opening up facilities at Prestwick to the American carriers--particularly FedEx.

A moment ago, I mentioned the protectionist policies on issues such as wet leasing, cabotage and inward investment, which serve to keep UK cargo carriers out of the United States domestic market. In spite of the ambitions of the US cargo carriers to operate in our United Kingdom market and their promises to bring pressure to bear on their own government to try to open up the liberalisation of the cargo market, we unfortunately remain unable to persuade the United States to level the playing field. Therefore, no progress has been made on that front in the past week.

With regard to the way forward in that area, I stress again that our primary goal is to secure full liberalisation. If we are not to reduce our leverage in future discussions, it is essential that any mini-deal should result in real benefits to the United Kingdom. However, perhaps unsurprisingly, negotiations on both Pittsburgh and cargo liberalisation were tough, and there remain serious differences of view between the two parties. Nevertheless, negotiations will resume in London later this month and we hope that further progress will be made then.

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It was suggested by the noble Baroness, Lady Thomas, that the European Union might be an influential negotiating ally for us in those areas. We are very well aware of that potential, and it is one that we are exploring positively. However, this is a complex issue which the Government keep under review in the light of bilateral talks with the United States.

In concluding, perhaps I may assure your Lordships that we can be certain of one thing; that is, that this Government will be guided in their decisions by an assessment of what is best for UK aviation generally. As your Lordships already appreciate, the challenge arises from the interests of the various players; not least, the consumers are in direct conflict. Therefore, our goal is a liberalised regime where there is equality of competitive opportunity for all carriers, the maximum of choice for consumers who wish to fly across the Atlantic, and economic advantages fairly distributed around the United Kingdom; in short, balanced skies truly open to all where all sides win.